WellPoint Profit Jumps as Insurer Has Lower Medical Costs

By Alex Nussbaum -
Jul 24, 2013

WellPoint Inc. (WLP), the second-biggest
U.S. health insurer, raised its profit forecast for 2013 after
lower-than-projected medical costs helped its earnings beat
analyst estimates for the second quarter.

Net-income soared 24 percent to $800.1 million, or $2.64 a
share, the Indianapolis-based carrier said today in a statement.
Earnings excluding one-time acquisition costs and investment
gains were $2.60 a share. Analysts had predicted $2.08, the
average of 19 estimates compiled by Bloomberg.

Chief Executive Officer Joseph Swedish has now beaten
earnings estimates and raised the profit forecast twice since
joining the company in March. The results have been fueled by
last year’s $4.9 billion acquisition of Medicaid insurer
Amerigroup Corp. and lower-than-anticipated medical costs that
have helped the entire industry.

The profit projection “remains conservatively stated,”
said Thomas Carroll, a Stifel Nicolaus & Co. analyst based in
Baltimore, in a note to clients. “In our view, Amerigroup and
the persistence of a low-utilization environment continue to
support strong earnings.”

The company raised the 2013 earnings forecast to at least
$8 a share from its previous projection of at least $7.75.

WellPoint shares fell less than 1 percent to $87.44 at the
close in New York. The stock has gained 44 percent this year.

Better Quarter

The results marked a reversal from last year’s quarter,
when WellPoint lowered its profit forecast and missed analysts’
estimates for the second time in three quarters. Combined with
prior missteps, the actions spurred a shareholder revolt that
led to the August resignation of CEO Angela Braly.

“A new CEO in a turnaround usually spends their first year
explaining that investors need to be patient,” said Erik Gordon, a business professor at the University of Michigan in
Ann Arbor, in an e-mail. “Swedish will enjoy the credibility he
gets from a second quarter with improved results that surprised
everyone.”

Revenue rose 16 percent to $17.6 billion, boosted by the
Amerigroup acquisition, the company said. The deal made
WellPoint the biggest provider of government-backed Medicaid
coverage for low-income Americans. The purchase also helped
swell enrollment in the second quarter by 6.3 percent to 35.7
million people.

Adding Members

WellPoint expects to add members next year among employer-backed plans and consumers who buy their own policies, Swedish
said in today’s statement. That should further cheer investors
worried about how the company will fare when key provisions of
President Barack Obama’s Affordable Care Act kick in, said Brian Wright, a Monness, Crespi, Hardt & Co. analyst in New York, in a
note to clients.

UnitedHealth Group Inc. (UNH), the biggest insurer, also beat
estimates last week thanks to lower medical claims, even as
hospital chains such as Community Health Systems Inc. (CYH) reported
patient admissions were down in the second quarter. The shift
has helped send managed-care stocks soaring this year, said
Scott Fidel, a Deutsch Bank analyst in New York.

“The soft health-care utilization trends that supported
earnings in 1Q13 have continued into 2Q13,” Fidel wrote in a
July 16 note to clients. “Medical cost trends have been
tracking at or near historical lows through April.”

WellPoint reported earnings of $643.6 million, or $1.94, a
year earlier.